How to invest your $640 Mega-Millions

If you win that huge prize, you might want to party like a rock star. But a financial advisor would probably tell you to invest it like Grandma. You'd still have millions to spend every year.

By MSN Money Partner Mar 30, 2012 11:27AM
By Jonnelle Marte for SmartMoney.com
 

Chances are that few, if any, of those dreaming what they’d do with the $640 Mega Millions jackpot fantasize about what their financial adviser might say. That’s because these buzz kills with CFPs think lottery winners should be as boring as possible -- at least, that is, when it comes to their portfolios.SmartMoney.com

 

After taxes, the record payout is likely to be closer to $320 million as a lump sum. However, tickets purchased in states such as Delaware and California will be worth even more due to the lack of income tax on winnings, according to USAMega.com.

 

Regardless, the prize money should be more than enough to fund a lifetime of lavish spending. Too often, of course, lottery winners blow through the cash so quickly they end up bankrupt. That’s where the dullness comes in, advisers say. The winner might consider investing like a grandma, with a surefire and downright boring portfolio. "If they are conservative they can have an amazing life style year after year," says Andrew Feldman, a financial planner in Chicago. "If they take too much risk they may lose too much." (Post continues after video...)

 

 

The sheer size of such a portfolio, advisers say, makes it possible to earn an outsize income with ultra-conservative investments. And lottery winners wouldn’t even have to spend a dime of their actual winnings to maintain millionaire lifestyles. Taken to the utmost extreme, investors could keep the entire stash in cash as three-month Treasury bills, where the $320 million would earn 0.07%, or $224,000. But no one needs to be quite that conservative, advisers say.

 

Related: Win the jackpot, buy these companies

 

Instead, one approach could be to put half the winnings in high-grade municipal bonds, where the income earned is tax exempt, says Matthew Goff, a financial adviser in Houston. That could bring in roughly $3 million a year in income, he estimates. Another 40% of the winnings could be put in high quality corporate bonds, where it could earn about $2 million a year. And for the sake of helping the jackpot keep pace with inflation, the rest of the cash could be invested in dividend paying stocks.

 

All told, that adds up to an annual income stream of about $7 million, that winners can live off of without having to touch the prize money, says Goff. “You could be much more conservative than say someone with a more typical portfolio,” he says. “Risk taking becomes more of a luxury than a necessity.”

 

Of course, the reality of winning could be much more complicated when one considers phone calls from distant relatives, student debt and life-long dreams of owning a business. Winners will probably have to dip into their principal, for instance, if they want to set up a private foundation for children with disabilities or buy their high school a new wing, says Brian Kazanchy, a wealth manager with RegentAtlantic Capital in Morristown, N.J. They might also want to buy companies rather than just invest in them. For that reason, Kazanchy recommends separating a portion of the winnings to cover large one-time expenses like charitable foundations, family trusts and a business ventures. The rest of the cash can then be invested conservatively to cover living costs, he says.

 

Most people buying a Mega Millions ticket today will find the odds aren’t in their favor: the chances of winning the Mega Millions jackpot on Friday are about one in 176 million, according to lottery officials. And even those who win may have to fight for their share. But that doesn’t stop people from dreaming about it. Indeed, psychologists say just the act of playing the lottery and fantasizing about what one would do with the winnings makes the jackpot feel more attainable. “The enormous amount attracts attention and people inevitably think of what it might mean to win,” says Nobel-prize winning psychologist and behavioral economist Daniel Kahneman. “That thought, in turn, makes the event more plausible.”

 

More at SmartMoney.com:

 

Legal advice on Mega Millions office pools

4 times it paid to have a lousy flight

Student loans on rise -- for kindergarten

 

VIDEO ON MSN MONEY

23Comments
Mar 30, 2012 12:49PM
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TOTALLY CONSERVATIVE You can get Approx 10 Million a Year without touching the money  If that is not eneough...or if you manage to screw that up and lose it..you are a MORON.....more than a moron....I would up my life style...even If you spent 2 million a year (40,000 a WEEK)  You are still putting 6 to 8 Million AWAY Per Year on top of the Motherlode....and THAT will grow and compound...My God...that is Generational money....If I win...dont even think of coming to me for investments or anything else...I WILL be the Dispenser of Charity Personally...  how I DEEM necessary ,Honest, and FIT.........on a PERSONAL basis...I would NEVER give to some crooked organization or charity for their"expenses"  with me...It will be hands on after I take care of my family ...buy my toys which everyone does. make sure I am secure with passive income...and take care of my short list (which is VERY short and I know EXACTLY who is on that list) I KNOW who was there and who loves me through thick and thin.who was genuine my entire life past and present...because of ME....not what I have obtained.....Then I would spend my life doing what I want....and have an amazing time helping people I pick out PERSONALLY on a One to one basis....THAT will be an amazing FEEL good life experience..having the ability to change and/or Help lives...for what I consider to be important. Yeah................​.

Money doesn't make you better...it makes you richer.....and I KNOW this....too bad most of the ones in power don't.

Mar 30, 2012 12:25PM
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After the Madoff scam and other wall street rip offs why would anyone invest their money?  You won half a billion dollars, do you need more?

Mar 30, 2012 12:36PM
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The problem is that if you put it in the bank and the bank goes broke you wind up with 250,000.
Mar 30, 2012 1:31PM
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I just wish I could win back all the money I've given state lotteries over the last 40 years.
Mar 30, 2012 1:04PM
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A fool and his money are easily parted...

Mar 30, 2012 12:35PM
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How many tickets have sold for this thing anyway? I bet there will be some major dividing up of this jackpot!
Mar 30, 2012 1:37PM
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Just think of the 47 people earlier in the week that were just 1 number away from winning the jackpot.  They all had the first 5 numbers correct, but not that elusive "cash ball" number.  What a cruel maiden.
Mar 30, 2012 1:36PM
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This amount of money is a tool to better many lives. I hope the winner(s) keep that in mind.
Mar 30, 2012 3:42PM
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I'm going to hire a lobbyist to buy a politician, start an investment bank, leverage the funds up to 32 to 1 and then blow up my company, then I'm going to get made fun of on ZeroHedge, then I'm going to lie to Congress about my client's money being vaporized, then I'm going to run for Congress, then I'm going to move to a nonextradition country, then....
Mar 30, 2012 4:03PM
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Invest?  Seriously!  In the off chance you might retire with a little more!  Die hard investors crack me up.  "The first thing I would do is invest!"  Idiots!  You have 100's of millions of dollars in your account.  With out it, If you invested your entire life, you may retire with a half million!   I would have a ball, and so would all my friends and family.  I would start my own business, set up a strong future for my children, and theirs!!! 

Mar 30, 2012 2:35PM
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i will not have to worry i don't win any thing and my luck has not been good for 2 years no job, that would be like winning the lottery to me a good paying job..
Mar 30, 2012 4:10PM
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Heck, I'd be happy with the five number winnings at this point!  That would be enough to sock some away for the kids to go to college and I could still buy a new car and take a sweet vacay.  Aahhh, one can only hope... :)

 

Mar 30, 2012 3:48PM
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Or maybe I'll pull a Tyrone from the Chapelle show and throw a $330,000,000 crack party...
Mar 30, 2012 3:58PM
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Sure, that way you can lose your money faster than spending it. Sorry giving some to family, and budgeting the rest of my life, living well. Certainty not supporting a brokerage firm or stock broker to prop up their loses. Lower than politicians, ponzi thieves.
Mar 30, 2012 2:12PM
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I don't want to begin to imagine the crazy rush next week if there are no winners tonight!

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Average age to LEGALLY play the lottery is 18 yo.

Figuring a 90 year life, very high guess..............that leaves 72 years to survive w/346 mil after taxes cash option, 4.8 after taxes....the equivilant of 6.24 mil yearly before tax lifetime income...........substantial!

Mar 30, 2012 2:30PM
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what nut would invest. i couldn't spend that much if I tried....
Mar 30, 2012 3:17PM
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First thing is to get a financial adviser. Then with the adviser sit down and decide how much you will take to play with and how much gets put into very very low risk investments. Make sure you will have an income for the balance of your life and then have a ball. As long as you don't get stupid you'd be alright.
Mar 30, 2012 8:01PM
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Hey put it in 30 year US treasuries at 4% and you'd make $12,800,000 a year in interest. Ok, a million a month, $650,000, after taxes is $20,000 a day. I don't any advice just the right 6 numbers.
Mar 30, 2012 6:03PM
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 1) college fund for my son and any future children

 2) pay off my house !! wouldn't take much as its almost paid off now !!

 3) buy a NEW car  .... my husband nor myself have ever had a brand new car

 4 ) extended family/charity  

 

 since my workaholic husband probably will never stop working who knows what would happen to the rest ..... invest in gold !

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